St James's Place 2017 Review

83% of SJP funds ranked within the bottom 50% in their sector for performance during the recent 5 years.

Concern over reward incentives for SJP Advisers who are rewarded for every £1 of investors' money they draw into the company

The ‘SJP Multi Asset’ Fund returned growth of 2.38% since its launch on 10th April 2012. This fund holds an initial investment charge of 5%

Loophole allows SJP to escape the FCA's 1% exit penalty cap as they continue to charge up to 6%

‘Sales focused’, ‘high charges’, ‘a lack of transparency on fees’ and ‘poor fund performance’ are some of the terms used to describe St James's Place in the barrage of negative press the fund management giant has received over recent months. Yet despite the negative press, SJP has continued to grow exponentially and their 2016 annual report shows that their funds under management have now reached over £75 billion.

SJP are the UK’s largest private asset manager yet their wealth management model has continually divided opinion. Their restricted approach limits clients to their own ‘in-house’ range of funds and their “Nectar Points” reward scheme for their partner advisers, which is based on the amount of client money they draw into the business, has raised concern among investors who feel SJP’s focus is simply on selling their products rather than delivering for investors. Despite their continued growth numerous SJP investors have contacted Yodelar to voice their confusion over charges and concerns over comparatively poor fund performance.

In this SJP funds review, we provide an independent analysis of their range of unit trust / ISA funds, Life funds, Pension funds and Offshore funds. We detail the 1, 3 & 5-year growth and sector ranking of each fund and provide a performance rating based on how each fund consistently performed in the 5-year period up to 11th May 2017.

Our analysis identifies that the significant majority of their funds have underperformed in comparison to competing funds within the same sectors, with 33% ranking in the worst quartile for performance.

About St James’s Place

SJP was initially a life company (J Rothchild Assurance) selling products such as critical illness, income protection and personal retirement plans before changing its name to St James's Place and moving into the wealth management sector.

Since 2000, funds under management have gone from £4.5bn to £75bn and they currently have over 550,000 clients. The number of advisers has increased from 1,000 sole traders from life company backgrounds to 3,415 advisers which SJP calls the “partnership” who direct their clients’ money into SJP’s range of funds. The advisers are not “employed” or paid a salary by SJP, the firm says, but receive 3% from the 5% initial charge levied on investors and a fee of 0.5% from the ongoing annual charges for the products clients invest in.

Over the last few years SJP has broadened its proposition further and expanded their reach offshore to Shanghai, Singapore and Hong Kong, areas where expat investors are used to paying extortionate fee's.

But as SJP’s profile has grown, so too has the scrutiny of its business model, both among other advice firms and the national press.

SJP’s annual report & accounts for 2016 has highlighted a significant increase in client numbers, funds under management and new partner advisers, which would support an increase in their popularity despite widespread negative press. However, the increase in SJP clients & funds under management has also been attributed to heavy use of their immense resources to fund the expansion of their partner firms and the acquisition of new IFA firms. Phil Young, director of Threesixty support services, said the biggest acquirer of IFA’s Independent Financial Advisers ‘by a long way’ is St James’s Place. When such deals are done, the majority of clients and their funds will also transfer to SJP, which has played a major part in SJP reaching its current scale of client numbers and funds under management. Clients are often unaware they are moving from an Independent environment which they were comfortable with to a company selling their own funds only!

SJP advisers are rewarded with a “Nectar Points” style bonus scheme for every pound of client money they bring to St James’s Place

SJP provide investors with access to 4 different fund structures made up of unit trust / ISA funds, life funds, Pension funds and offshore funds. As a restricted wealth management firm, St James’s Place will only provide investors with access to their in-house selection of funds. Therefore, their 3,415 partner advisers can only sell SJP investment funds and cannot offer investors access to the thousands of other funds on the market, even if they are better suited to the client.

The fact that SJP are restricted has led to many investors and financial insiders question if SJP advisers are essentially glorified salesmen. And as reported in the Times, SJP incentivise their advisers via a “Nectar Points” or “Air Miles” style system that rewards them for every £1 of investors’ money they draw into the business.

The SJP document leaked to the Times details how advisers who earn 1.5m core credits, equivalent to £1.5m of initial advice fees, boost their “productivity bonus” by up to 40%. Other rewards include Asprey cufflinks and luxury trips abroad. Rivals have said the offer of overseas trips or jewellery could result in a conflict of interest and reminds them of the “commission-based” system that many have moved away from. Back then, advisers could recommend funds that paid the highest commission, rather than those most suitable for the client. SJP have stated that no such issues arise because its advisers sell only SJP products, and there is no chance of bias. The fact SJP only sell ‘Their’ own products has done little to settle the concerns of those who believe SJP’s focus is to simply increase the level of client funds under management.

82% of the £20.2 billion held in SJP unit trust / ISA funds are placed in poor performing funds

Over 25% of client monies under the management of SJP are held within their range of 36 unit trust and ISA funds. Our analysis identified that only 2 of these funds have consistently maintained a level of top quartile performance, over the 1, 3 & 5-year period up to 11th May 2017. These funds performed better than at least 75% of other same sector funds. Some £16.7 billion or 82.7% was invested in funds that ranked in the worst 50% of same sector funds over the 5 years analysed.

Among the funds to underperform was the ‘SJP Multi Asset’ Fund. This fund holds over £789 million of investors’ money and since its launch on 10th April 2012 up to 11th May 2017 it has returned a small growth of 2.38%. To put this into context, if you had invested £100,000 in this fund in 10th April 2012, with SJP charging an initial charge of 5%, your investment would be worth £97, 261 on 11th May 2017, generating a loss of £2,739.

Less than 11% of St James’s Place pension funds have consistently maintained top quartile performance

There are 38 pension funds available to St James’s Place investors. Only 4 SJP pension funds have maintained a consistent top quartile sector ranking (top 25% of sector) during the recent 1, 3 & 5-year period analysed. The ‘SJP Global Managed’ fund was one of these top performers. This fund holds over £3.1 billion of client money. This fund has consistently ranked highly in its sector returning growth of 32.97% over the recent 1 year and 122.74% over 5 years.

In contrast, the ‘SJP Money Market’ pension fund, which holds over £550 million of client funds has been nothing short of a disaster. Anyone invested in this fund since 6th January 2009 has lost. Since 2009 the fund has returned negative growth of -25.16%. Over the recent 5 years alone it returned negative growth of -16.35%.

Poor Comparative Performance From SJP’s Range of Life Funds

From the 39 life funds on offer from SJP only 1 has been able to maintain a level of performance that was greater than 75% of competing same sector funds. This fund was the ‘SJP International Equity’ fund which holds just under £1 billion of client funds, representing 4.9% of the total amount of client funds held within SJP’s range of Life funds. The ‘SJP International Equity’ fund represents SJP’s only consistently ‘Top’ performing Life fund and has excelled in its sector, returning growth of 22.34% over the recent 1 year period and 93.99% over 5 years.

Our analysis identified that 74% of SJP life funds have performed worse than at least half of all other funds in their sector. Among the funds to consistently underperform was the ‘SJP Asia Pacific’ fund (previously known as SJP Far East). This fund returned growth of 22.57% between 11th May 2016 and 11th May 2017 and 33.44% in the 5 years up to 11th May 2017. While these returns may seem impressive they are in fact lower than that achieved by 99% of same sector funds over the same time period, with the top performing fund returning growth of 100.35% over the recent 5 year period.

St James’s Place International Funds Disappoint

Offshore funds have become an increasingly popular investment option with SJP providing their investors with access to 85 different offshore investment funds.

Our analysis identified that 5 SJP International funds have maintained a level of performance that was greater than at least 3 quarters of all other same sector funds. The ‘SJP' Global Managed £ GBP’ fund was one of their few top performers. This fund has consistently been very competitive returning growth of 31.63% in the 1 year period up to 11th May 2017 and 114.36% in the 5-year period up to 11th May 2017. But similar to their other range of funds, the significant proportion of their offshore funds have performed poorly in comparison to competing funds with 61 of the 85 offshore funds ranking within the bottom 50% of their sector during the recent 5-year period.

5% entry fee & up to 6% exit fees levied on SJP investors

St James’s Place fees and charging structure has been a topic that has come under scrutiny for a number of years with allegations of heavy charges and a lack of transparency as to what their investors are actually paying.

Their investors pay an initial charge of 5% on investment funds

Exit fees of 6% on pension and investment bond products within the first year reducing by 1% each year the customer remains with SJP. If a client adds money to that product the 6 year clock is reset for that portion of the investment.

Annual management charge of 1.5% pension and life funds and up to 1.37% for unit trust / ISA funds of which the adviser (SJP Partner) receives 0.5% ongoing each year.

On top of SJP’s annual management charge there is also an external management charge which can reach 0.91% (This external management charge is the fee paid to the fund manager for managing and maintaining the investment fund each year).

There charging structure means that new investors can pay over 7% of the amount they invest in fees in the first year alone.

SJP has attracted criticism notably from the Sunday Times regarding the firm’s complex charging structure and specifically on the level of exit charges applied. Despite the FCA cap on early exit charges, which took effect on 31 March 2017 and is set at 1% maximum, SJP still operate an exit charge of up to 6 per cent, which reduces by 1 per cent a year over the first six years.

Recently retired St James's Place Chief Executive David Bellamy said that the company removed exit charges from their contracts 2 years ago and despite the fees remaining they are confident that they are not in breach of the FCA ruling. “It’s not an exit penalty, we call it very specifically an early withdrawal charge because it’s a means of funding the advice charge”. Mr Bellamy states “It’s almost like a deferred advice charge. It’s structured on the basis that if you stay with us for six years, you will simply have paid your 1.5 per cent annual management charge.” But the fact remains, if you invest in a pension or a bond with SJP and wish to withdraw your money and move to another provider you will be charged a fee of up to 6% of the amount you initially invested.

Summary

SJP continue to divide opinion among investors. Their business model of funding partner advisers and recruiting IFA firms has enabled them to scale and substantially increase their amount of funds under management. But for many investors their restricted wealth management approach, comparatively poor fund performance, high charges and exit penalties are a significant pain point.

Based on the facts it appears that the SJP model / client proposition is primarily focused on fee generation for St James Place and their tied, self-employed partner advisers, who cannot provide independent advice and only provide investors with access to the funds provided to them by SJP.

There restricted approach coupled with their charges and fund performance would suggest that investors with a focus on maximising returns within a suitable risk portfolio, that is both cost effective and delivering on performance, would be better served elsewhere.